Scarlett on the Origins of Shareholder's Derivative Litigation

[The] debate over corporate purpose is not new. It raged in the first half of
the 20th century with the proliferation of public corporations, in
which many investors could purchase shares
in corporations on a public stock exchange but play no active role in
the management of those corporations.Before
the early 1900s, most corporations were privately owned by a small
group of shareholders who typically participated in managing the
corporation.But
even then, courts struggled with the question of corporate purpose
within these private companies as shareholders sought to challenge the
actions of directors through litigation.
The shareholder derivative lawsuit is an important part of the debate
about corporate purpose because, through such lawsuits, shareholders
seek to hold directors accountable for their decisions. Yet scholars in
the modern debate over corporate purpose have
ignored its historical origins as reflected in shareholder litigation
prior to the 20th century. Almost all scholarship that even briefly
mentions early shareholder derivative lawsuits in the United States
relies solely upon a 15-page paper by Professor Bert
Prunty published in 1957.This Article seeks to remedy this gap in the literature by more fully examining English and U.S. law on the shareholder
derivative action to understand its true historical and normative foundations.